HHS Announces Provider Relief Fund Payments for Medicaid Providers, Hot Spot & Safety Net Hospitals

COVID-19 Update

On June 9, the Department of Health & Human Services (HHS) announced its latest allocations of the $175 billion Provider Relief Fund,1 including approximately $15 billion for Medicaid providers that do not bill Medicare (predominantly outpatient providers), $10 billion for safety net hospitals as defined by specific HHS criteria and an additional $10 billion for COVID-19 “hot spot” hospitals. HHS indicated that the safety net hospital payments will be distributed “this week.” The timing of the other distributions is not yet known.

Below, we provide an updated overview of funds announced to date along with additional information about these three new allocations and what they mean for providers.

Figure 1. Provider Relief Fund Allocations Announced to Date

$15 Billion for Medicaid Providers

Medicaid/CHIP providers that did not receive an allocation from the $50 billion General Distribution—meaning they did not bill Medicare in 2019 and therefore are ineligible for a General Distribution payment—are eligible for this payment. HHS expects that nearly 1 million providers (38% of those enrolled in Medicaid/CHIP) are eligible, including pediatricians, obstetricians/gynecologists, opioid treatment and behavioral health providers, assisted living facilities, and other home- and community-based service providers.

These providers will receive “at least” 2% of reported gross revenues from patient care. This method of determining payments is akin to HHS’ recently clarified methodology for distributing payments from Tranche 2 of the General Distribution. On May 29, HHS updated its Provider Relief Fund FAQs, indicating that providers that received at least 2% of their annual gross receipts from Tranche 1 payments may not receive additional Tranche 2 payments.2

Taken together, all Medicare and Medicaid providers are eligible to receive Provider Relief Fund payments of at least 2% of annual patient revenues. Many providers will receive more than 2% of annual patient revenues in Provider Relief Fund payments—from the General Distribution (because their share of Medicare fee-for-service revenues resulted in their receiving large allocations from Tranche 1 of the General Distribution payments) and/or because they are eligible for other Provider Relief Fund allocations (such as the targeted allocations for hot spot hospitals, safety net hospitals or rural providers). On June 10, HHS made available the portal through which Medicaid/CHIP providers may apply for this funding, and released instructions and the application form.

While the Medicaid distribution responds in part to calls from bipartisan congressional leaders3 the Medicaid and CHIP Payment and Access Commission,4 health industry stakeholders and advocates to address the growing financial challenges faced by Medicaid providers left unaddressed by prior allocations, the new $15 billion allocation may not entirely address stakeholders’ concerns for two primary reasons:

1. Some providers with small amounts of Medicare billing may not have applied for Tranche 2 payments, making it impossible for them to reach the 2% of revenue target from the General Distribution. Providers with panels of a relatively small number of Medicare patients automatically received payments from Tranche 1 of the General Distribution—but these payments would have been very small (indeed, some providers received de minimis payments of as little as $1). After receiving limited Tranche 1 funds, these providers may have declined to apply for Tranche 2 of the General Distribution funding on the theory that it was not worth the effort and that they would benefit more from a subsequent distribution to Medicaid providers. HHS’s June 9 announcement—made nearly a week after the deadline for applying for Tranche 2 of General Distribution funds—is the first time that HHS indicated that providers with any Medicare fee-for-service billing would be ineligible for a subsequent round of Medicaid-focused payments, thereby making Tranche 2 critical for high-volume Medicaid providers with some Medicare billing. These providers likely did not anticipate that having received any payment—even just $1—from the General Distribution would disqualify them from receiving funds from the long-anticipated Medicaid distribution.

2. Medicaid reimbursement is significantly lower than Medicare or commercial coverage reimbursement for the same service. As a result, basing Medicaid providers’ Provider Relief Fund payments on patient revenue puts them at a significant disadvantage.

In the coming days and weeks, we may see continued calls for HHS to address these concerns in future Provider Relief Fund allocations, particularly for outpatient providers that will not benefit from the $10 billion for safety net hospitals.

$10B for Safety Net Hospitals

With payments expected “this week,” this allocation will provide safety net hospitals with between $5 million and $50 million each. Eligible hospitals must have:

  • A Medicare Disproportionate Patient Percentage of 20.2% or greater
  • Average Uncompensated Care per bed of $25,000 or more
  • Profitability of 3% or less, as reported to CMS in its most recently filed cost report

A preliminary analysis of Medicare Cost Report data suggests that approximately 23% of hospitals that have reported all necessary data satisfy all three criteria described above.5 However, there is significant uncertainty around how HHS will calculate each of these measures and how it will treat hospitals with incomplete Cost Report data.

For qualifying hospitals, the safety net hospital distribution will mitigate the inequities of the General Distribution’s focus on patient revenue. Safety net hospitals serve large numbers of Medicaid and uninsured patients, and, as result of lower reimbursement in Medicaid, their overall patient revenue would be lower than that of other hospitals. Because the General Distribution is tied to patient revenue, safety net hospitals received (or will receive) less from the General Distribution on a per patient basis. The safety net hospital distribution will make up some of the gap, though it is unclear how much.

$10B for Hot Spot Hospitals

Around May 1, HHS announced that it was releasing the first of what is now two tranches of payments for hospitals in high-impact areas. The first round of payments was made to the 395 hospitals that provided inpatient care to 100 or more COVID-19 patients between January 1 and April 10. (For more information, see Manatt’s May 5 newsletter). On June 9, HHS announced a second tranche of funding for hot spot hospitals and requested that hospitals submit data by June 15 about the number of COVID-19-positive inpatient admissions between January 1 and June 10. HHS indicates in an update to its Provider Relief Fund FAQs that its allocation methodology “will be determined after fully analyzing the collective data submitted by hospitals.”

HHS is clear, however, that “funding from the prior round will be taken into account in making payments under this round,” suggesting that hospitals in areas that have seen an uptick in COVID-19 admissions between April 10 and June 10 may receive a greater share of this distribution.

What’s Next?

HHS will, after this distribution, have further Provider Relief Fund payments left to distribute, and the only remaining “additional allocation” it has previewed is a payment to dentists. The allocations to date amount to $107.5 billion plus the unknown amount of funding available for uninsured claims. Although the total funding amount that will ultimately be expended on uninsured claims is unknown, Kaiser Family Foundation estimated in April that the cost would range from $13.9 billion to $41.8 billion. Even assuming the cost to be at the top end of that range, allocations to date would account for nearly $150 billion, leaving $25 billion on the table for further distributions.

1 The Coronavirus Aid, Relief, and Economic Security Act (CARES Act, P.L. 116-136) authorized $100 billion in direct-to-provider funding. The Paycheck Protection Program and Health Care Enhancement Act (best known as “Stimulus 3.5,” P.L. 116-139) authorized an additional $75 billion.

2 HHS indicates that Tranche 2 payments are determined based on “the lesser of 2% of a provider’s 2018 (or most recent complete tax year) gross receipts or the sum of incurred losses for March and April.”

3 On June 3, the chairs and ranking members of the committees with jurisdiction over the Medicaid program sent a letter to HHS Secretary Alex Azar urging him to issue Provider Relief Fund payments to Medicaid-dependent providers.

4 On April 30, the Medicaid and CHIP Payment and Access Commission (MACPAC) sent a letter to Secretary Azar outlining the Commission’s concerns about Provider Relief Fund allocations made to date.

5 Manatt analysis.

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